J&J Said to Offer Implant Pact That May Reach $2 Billion

By Jef Feeley and David Voreacos -
Jan 19, 2013

Johnson & Johnson (JNJ), which is fighting
more than 10,000 lawsuits over its recalled hip implants, is
negotiating a potential settlement with patients that may
eventually total more than $2 billion, according to five people
familiar with the matter.

J&J, the world’s biggest seller of health-care products,
offered to pay more than $200,000 a case, according to the
people, a deal which could exceed $2 billion if most plaintiffs
accept the terms. Lawyers for hip recipients have so far
rejected the offer as too low, the people said.

In 2010, J&J recalled 93,000 all-metal hips worldwide,
including 37,000 in the U.S., saying more than 12 percent failed
within five years. Patients who sued contend they suffer pain
and are immobilized by joint dislocations, infections and bone
fractures. They alleged metal debris from the hips causes tissue
death around the joints.

The settlement talks probably won’t end until after the
first trials of the lawsuits begin, starting next week, with
more set for next month and May, according to the people, who
asked not to be identified because they aren’t authorized to
speak publicly about the talks.

“The company can’t afford to defend these lawsuits case by
case,” said John M. Fitzpatrick, a defense lawyer at Wheeler
Trigg O’Donnell LLP in Denver who isn’t involved in the matter.
“J&J needs to shut this down. The only way they can do that is
through a global settlement. Plaintiffs’ lawyers know that.
That’s why everybody has to push to see what they can get.”

‘Litigation Strategy’

Lorie Gawreluk, a spokeswoman for J&J, declined to comment
on the company’s “litigation strategy” or any settlement
talks.

“DePuy believes the evidence to be presented at trial will
show the company acted appropriately and responsibly,” Gawreluk
said in an e-mailed statement about the JNJ unit which made the
implants.

J&J, based in New Brunswick, New Jersey, said in a November
filing with the U.S. Securities and Exchange Commission that it
increased reserves “due to anticipated product liability
litigation and costs associated with” the ASR hips. The company
didn’t specify the amount of the increase.

JNJ rose 33 cents to $73.23 in New York Stock Exchange
trading. The company said in January 2012 that it had spent
about $800 million on hip recalls during the prior two years.
J&J didn’t provide an estimate of its product-liability costs.

November Filing

J&J faced 10,100 suits over the hips through September,
according to the November filing. Most pretrial collection of
evidence has been consolidated in federal court in Toledo, Ohio,
where 7,240 cases are pending, and California state court in San
Francisco, where more than 2,000 cases are filed. Other cases
have been filed in state courts around the U.S.

“At this time we have a significant number of trials set
with the company and we are primarily focusing our efforts on
trial preparation,” said Steven J. Skikos, co-lead counsel of a
plaintiffs’ executive committee leading federal multidistrict
litigation overseen by U.S. District Judge David A. Katz in
Toledo.

“Any comment relating to settlement that does not come
from leadership, the court, or from the company itself, is
speculative and uninformed,” said Skikos, of Skikos Crawford
Skikos & Joseph in San Francisco and Cleveland.

Attorneys involved in the litigation have reviewed more
than 50 million pages of documents and have deposed more than 50
witnesses, according to Skikos.

Three Cases

The three cases going to trial in the next few months may
offer lawyers guidance on potential liability and damages. The
first proceeding starts Jan. 23 in state court in Los Angeles;
the second begins next month in state court in Chicago; and a
third is slated for May in federal court in Toledo, Ohio.

The negotiations will probably produce an accord that would
compensate patients based on factors such as their age, the
extent of their injuries and whether they had one or more
surgeries to replace defective implants, according to the
people.

In 2007, Merck & Co. set up a $4.85 billion settlement fund
to resolve lawsuits over its Vioxx painkiller, which it pulled
from the market in 2004 after a study showed it doubled the risk
of heart attacks and strokes. Under that accord, a court-
appointed administrator analyzed each claim, weighing such
factors as a user’s age, their length of use, and health risks
such as obesity or hypertension.

The J&J hips were made from a cobalt and chromium alloy
used in two related models of hips -- the ASR XL Acetabular
System, and the ASR Hip Resurfacing System. In announcing its
recall, J&J cited unpublished data from the U.K. showing that
within five years, 13 percent of ASR XL hips failed and needed
to be replaced, and 12 percent of the ASR Hip Resurfacing System
failed.

Preliminary Data

In March 2011, the British Orthopaedic Association and the
British Hip Society said preliminary data put the ASR XL’s
failure rate in the U.K. as high as 49 percent after six years.

Lawyers for patients claim that debris from the metal ball
sliding against the metal cup causes tissue death around the
joint and may increase the amount of metal ions in the
bloodstream to harmful levels.

On Jan. 17, the U.S. Food and Drug Administration proposed
tightening regulations for metal-on-metal implants, requiring
manufacturers to conduct clinical studies before marketing the
devices.

Under current regulations, companies need not show that the
hips are safe and effective; rather, they must show they are
“substantially equivalent” to devices already cleared by the
FDA through the so-called 510(k) process.

Los Angeles

The Los Angeles court trial involves a lawsuit by Loren
Kransky of Montana, a retired corrections officer who got an ASR
hip implanted on Dec. 5, 2007. He had the hip replaced in
February 2012. Claims by Kransky, 65, include failure to warn,
negligent recall and manufacturing defect.

“Kransky asserts that his device released metal ions into
his body and that as a result he developed elevated chromium and
cobalt levels,” J&J said in a Nov. 21 court filing. The
instructions with the implant “specifically warned that metal
ions may be released from the hip implant into the body and that
additional surgery may be required.”

A retiree and a military veteran, Kransky’s health
conditions included “diabetes, neuropathy, arteriosclerosis and
heart problems, some of which were determined to be associated
with his exposure to Agent Orange while serving in Vietnam in
the 1970s,” according to the filing.

Kransky’s case was chosen from those pending in the
California Judicial Council Coordinated Proceeding before Judge
Richard Kramer in San Francisco.

The Kransky case is Kransky v. DePuy, BC456086, Superior
Court of the State of California (Los Angeles). The consolidated
federal case is In re DePuy Orthopedics Inc., ASR Hip Implant
Products Liability Litigation, 10-MD-2197, U.S. District Court,
Northern District of Ohio (Toledo).